Ladies and gentlemen, good day and welcome to Fusion Finance Limited Q2 FY 2025 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. From the management today we have Mr. Devesh Sachdev, MD & CEO, Mr. Gaurav Maheshwari, CFO, Mr. Sunil Mundra, COO of the MFI Business, Mr. Tarun Mehndiratta, Head Customer Loyalty Program and New Initiatives, and Mr. Deepak Madaan, Company Secretary and Chief Compliance Officer. We will have opening comments from the management team, post which we will open the call for Q&A. With that, I will hand over the call to Mr. Devesh Sachdev.
Thank you, and over to you, sir.
Good afternoon, everyone, and thank you for joining Fusion's Q2 financial year 2024/2025 results conference call. I am here along with my colleagues, Sunil, who has recently joined as Chief Operating Officer for our MFI vertical, Tarun, who is now handling customer loyalty program and new initiatives, Gaurav, the CFO, and Deepak Madaan, who is Chief Compliance Officer and IR. I hope you got a chance to go through our investor presentation for Q2 FY 2025. As we all know, the microfinance industry has been facing headwinds since past few months. In our last earnings call, we were one of the few MFIs which had highlighted the increasing stress in the sector. The headwinds in MFIs were not evenly spread across the country, and there were few states that experienced elevated levels of stress on asset quality.
Last part of the differential impact for the various microfinance lenders can also be attributable to their exposure to those geographies. As part of our early recognition of portfolio stress and to ensure that we have adequate coverage, we have made an upfront provisioning in June quarter. We had also shared an early estimate of expected provisioning of between INR 500 crore- INR 550 crore for Q2 FY 2025 in mid-September, which was subject to limited review by auditors. I would like to mention that post the review of our auditors, our actual credit cost for Q2 FY 2025 has been determined at INR 693 crore. The elevated provisioning has been due to us proactively taking accelerated provisions due to observed rapid deterioration in the on-ground collections.
Looking at our portfolio performance and challenges faced by the sector, our auditor wants to bring to the attention that there are covenant breaches that will require waivers. We are in discussion with our lenders and rating agencies. We have received all the waivers in Q1 and remain confident that similar waivers will be granted further too. Importantly, we believe that these breaches are temporary in nature, and we have already planned additional remedial measures, including a rights issue of up to INR 550 crore on which we have been working on the last month or so. Now that our Q2 numbers are out, we have fast-tracked the process and hope to file it within this quarter.
Would like to highlight that our balance sheet remains strong with a capital adequacy of 24.4% as of September 24, with a robust liquidity position of approximately INR 1,700+ crore as of Q2 FY 2025. Now, I would like to talk about the measures which we have undertaken to ease the stress and bring the business back on track. Firstly, I would like to talk about the steps on improving the collections. As highlighted in the last call, we now have a senior resource as collection head. We have strengthened our collections team as well, and now we have a robust team of 550+ dedicatedly focused on 60+ DPD bucket. We have strengthened our telecalling infrastructure to reinforce outreach to our customers for better recoveries.
We have also appointed third-party agencies in the few of the geographies to recover dues from 90+ DPD customers. Additionally, we have redid the incentive structures across business team to increase focus on collections. Second, we have tightened our credit criteria. As a result, our new customer onboarding criteria is now tighter than the MFIN guardrails with lender cap of three lenders per borrower and exposure cap of INR 150,000 per borrower for new clients. This has calibrated our overall disbursements which have dropped to INR 1,661 crore from INR 2,987 crore in Q1. This has also led to a rise in our rejection rates while ensuring that we are building a quality portfolio.
Here, I would like to highlight that while at the sectoral level, the uncertainty still persists regarding the duration of this situation and customer behavior evolution as core issues gradually normalize. We are observing some early positive signs, though these remain in a nascent stage. Sectoral measures are showing results and over-indebtedness is beginning to decline. The rural agriculture economy is expected to improve due to favorable monsoons, which is likely to enhance income levels. Specific to Fusion, as we continue to progressively align with the changing external environment, we are observing the following trends. Early preemptive actions taken in the previous quarter, followed by a sector-wide guard rails issued by MFIN, has moderated the composition of portfolio with our risk customers having equal to more than four lenders, with a corresponding impact on overall indebtedness levels. We have mentioned this in slide number nine.
Collection performance seems to be stabilizing and we continue to monitor the same closely. Further, in addition to the above measures that I spoke about, we have also taken more steps to address the current challenges and support the healthy growth of the business. To tackle the issue of low center meeting attendance, we have already reduced our customer handling per relationship officer to 380 customers per relationship officer, so that we can improve our customer outreach on the ground with strong focus on customers with irregular attendance. Further, we have been working on our customer loyalty program. While it is in an early stage, we have received encouraging response from our customers and we have seen improvement in their attendance wherever this program has been launched.
In addition to this, we also have a separate telecalling infrastructure for customers up to 60+ DPD, which is helping us to increase touch points with our customers and enhance engagement. The moderation in client handling per field officer will also help in reducing workload and attrition at the ground level. Apart from this, we have also stepped up our efforts in training our field staff so that they are well-equipped in a dynamic environment. We are also taking several other steps to motivate and incentivize the field staff. We have continued to strengthen the executive leadership team of the company and as previously mentioned, have initiated a search to appoint a new CEO, which is also on track. Additionally, we are also initiating a project to further review and enhance our internal policies and processes with respect to reimbursements, over and above the changes we have already made.
From a medium-term perspective, our focus remains on enhancing our IT capabilities to improve our operational efficiencies, field personal management, and risk controls. We see this as critical owing to our extensive geographical presence. Our other key focus areas would be our MSME vertical, as we ramp up our efforts to expand its share in our overall business. Our MSME AUM has grown to INR 620 crore, with almost 78% of the portfolio being secured. We have implemented new loan origination and customer management tech platform, which has been built in-house. Once fully rolled out, it will bring in better operational efficiency and scalability. Our MSME portfolio quality continues to be healthy. At the overall company level, I would like to reiterate that we continue to remain adequately capitalized, which will be further strengthened post the completion of the rights issue.
As mentioned earlier, we continue to maintain a healthy equity in excess of INR 700 crore. I would like to assure you that our strong focus is on improving collection efficiency and thereby our overall portfolio quality. As seen in the past, second half of financial year should see better rural activity. We are hopeful this will aid in our recovery process. We remain watchful and will continue to evaluate situation on quarter-on-quarter basis while taking measured approach. Thank you very much. With this, I hand over the call to my colleague, Gaurav.
Thank you, Devesh. Good afternoon, everyone. Firstly, I would like to talk about our liability side, including fundraising, capital position and liquidity. In Q2 FY 2025, we have raised INR 1,513 crore, including direct assignment of INR 435 crore in Q2. Until H1, we are able to raise INR 4,060 crore, including direct assignment of INR 915 crore. In the month of September, we drew the remaining tranche of $5 million from DFC, which is U.S. International Development Finance Corporation. As on September 30th, our liquidity stands at INR 1,800 crore approx, and we have sanctions in hand of approximately INR 1,500 crore. Refer slide number 26 for stable liquidity position from October to March 2025.
We are maintaining a healthy capital adequacy of 24.39% as on September 30th, and as mentioned by Devesh, we are in the process to raise capital under the rights issue. Our marginal cost of fund has further reduced by 4 basis points on quarter-on-quarter basis and 53 basis points on year-on-year basis. Average cost of fund has decreased by 50 basis points on year-on-year basis and by 4 basis points on quarter-on-quarter basis. The NIM of the company has reduced by 15 basis points to 11.48% from Q1, and increased by 37 basis points on year-on-year basis. It is largely due to the higher write-off taken in this quarter. The interest income of the company grew by 0.77% on a quarter-on-quarter basis and 26.02% on year-on-year basis.
The total income has reduced by 0.42% on a quarter-on-quarter basis and increased by 23.19% on a year-on-year basis. Cost to income ratio stands at 40.41%, which Devesh has mentioned that we have rationalized the manpower on the field level where our productivity has been reduced to a particular level.
Apart from that, we have revamped the incentive structure for the collection team and the regular field staff. The operating cost has increased by 21 basis points on a quarter-on-quarter basis. As mentioned earlier into the cost-to-income ratio, the major reason is because of the incentive structure and the rationalization of the manpower at the field level. Operating cost for MFI business is 6.18%, and MSME business contributes 0.30% for Q2 FY 2025. As on September 30th, 2024, the pre-provision operating profit is INR 284 crore, increased by 17.39% on a year-on-year basis and decreased by 4.67% on a quarter-on-quarter basis. The ECL as on September stands at INR 1,140 crore, which includes INR 59.50 crore of management overlay.
We have done total write-off in H1 is INR 254.84 crore. In Q2, we have done write-off of INR 196.44 crore. The de-recognition of interest pertaining to this write-off is INR 34.41 crore in Q2. The gross NPA stands at 9.41%, and net NPA stands at 2.41%. In this quarter, as mentioned earlier, we have done direct assignment of up to INR 435 crore, which is approximately 11.70% of the total book, and we will continue to do so as per the market condition. Thanks. Now we can open the floor for the question- and- answer.
Thank you very much, sir. We will now begin with the question- and- answer session. Anyone who wishes to ask questions may press star and one on their touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and one to ask questions. The first question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yeah. Thank you. Good evening. Good afternoon, everyone. Thank you for taking the questions. Just two questions. First things first, in your opening remarks, you highlighted the external challenges which are there. If you could also just highlight what are the deficiencies that you have identified internally. Because I am sure you will also acknowledge our performance, our asset quality, our credit costs are much higher than what we have seen in the rest of the industry. So what are the deficiencies that you have identified, maybe in your processes, controls, supervisory levels? That is the first question. The second one is, what is the basis on which your auditor has put out the note on the going concern premise? If you went through the note where you have spoken about almost INR 5,000 crore of liabilities which are repayable on demand given it reaches incompetence.
If you could just throw some more light on that. Just trying to understand what is the probability that maybe Fusion might default on its liabilities going ahead. Particularly, what is the support that our two promoters have shown in this regard? Lastly, which are those five banks on your liability side which have the highest exposure to Fusion today?
Yes. So thank you. I will first like to take your question on whether we have identified any deficiency or process and everything. I think my answer to this is, when you look back, you can always say that you could have done more. But I do not think where we have found any such deficiency. As an evolving organization, you always look at your processes you want to strengthen. That is what we have been doing. If you look at the fact that the sector itself is going through a challenge, we have been putting out the leverage of the customer in all our past conference calls. This has been accentuated by the customer overall center meeting discipline, door-to-door collection, some pain at the ground.
So what we have noticed is that overall the profile of the customer, the credit profile of the customer has weakened because of this over-leverage. That is what is our observation, and that is the reason that even at a sector level, if you see, everyone has come together for this full lender guardrail. Fusion, we have always been ahead. Even we had that guardrail since 2022, and we have now kept it more stringent.
The overall nature of some of the aspects of the sector are changing. We are aligning with that. We mentioned even in the last call that now you need to have a separate collection team that we have put in place. Because of the model, the guy who was doing the sourcing was also doing the collection. But now, because the customer profile and the difficulties are in the field due to customer, the boy has to go door to door. In some pockets, there are outside influences because of the pain. People who are illegal agencies who are trying to influence a customer not to pay. We have also seen there are various disruptions which may have accelerated this situation because there were floods. We had highlighted the floods last year in Punjab, in Northern India, Rajasthan, MP.
We have also highlighted the pain in Punjab because of the factors which are outside the control of the sector, which is the Karz Mukti Abhiyan. Similarly, the first Q1, we have seen heatwaves and all that. I think the point I am trying to drive at is that there were some of these sectors also which have played a role in the customers actually impacting their livelihood and customers not able to pay on time. We have seen in the past, if you go back, look at the sector, how the resilience during the demonetization, all the events which happened after demonetization and COVID. What we had seen is that I think customer is taking some time. There are some delays. We are seeing even in the higher bucket, some customers are trying to make a payment.
Once the overall leverage of the sector is going down, which we have referred in the slide nine which is clearly visible in our portfolio and overall economy activity at the ground will go up. I am sure that this customer will come back as the way this customer has come back in the past in various events. So this is my response on your first point. The second point you mentioned about this covenant breach. Look, because we have done an oversized, overall provisioning in this quarter, and due to acceleration of provisions, our auditor thought it prudent to bring to the attention that there are covenant breaches that will require waivers. You asked about our confidence. Look, we have all the waivers till Q1. We had covenant breaches even in Q1. We have got all the waivers.
As I mentioned in my commentary, we are in discussion with the lenders and rating agencies. We remain confident that the similar waivers will be granted further too, and these breaches are temporary in nature. We have already planned our rights issue. I can confirm it again that our promoters are completely behind this INR 550 crore rights issue we have been working on for the last month or so. Now, because we were waiting for our Q2 results to be out so that we can do the filing, that filing process has been fast-tracked, and you will see that we are confident that within this quarter, we will be able to file this. As far as our liquidity, we have a strong balance sheet, capital adequacy of 24.4%, and we have a robust liquidity of INR 1,700 crore.
This gives us confidence that we will be able to continue to remain sustainable going forward. Gaurav, can you answer on some specific point on the number of top lenders and that.
The top five lenders are HSBC, Axis Bank, Yes Bank, ICICI, SIDBI, and IDFC First.
Got it, Gaurav. And roughly, I mean, the top two, three will be in excess of INR 200, INR 300 crore?
They are having an exposure of more than INR 500 crore per bank. Having said that, we are already in discussion with the bankers. As of today, we are in active discussion to have the waiver to be happening. As mentioned by Devesh, in Q1, we got breach from 12 lenders. All the 12 lenders have given the waivers for Q1, and they have given a waiver for the entire financial year and some of the bankers have given for Q1, Q2 also.
Got it, Gaurav, sir. Sir, just one follow-up on that. I mean, what are the covenant breaches that have happened? Is it more in the nature of the level of GNPA, where we are at, or is it more in the nature of the kind of credit costs that we have reported in the quarter? One follow-up for Devesh, sir. Sir, in your opening remarks, you also spoke about that there are few states which have experienced elevated levels of stress, and whatever we have seen in this quarter can also be attributable to the respective lenders' exposure to those geographies. If you could give some nuances around those particular states which are a problem area today.
As far as the covenant breaches are concerned, it is largely what you have said, Abhijit. One is gross NPA, second is net NPA, and third is a rating downgrade, which has happened by CARE, which was in the month of September. As we have already communicated about the rating downgrade to all the lenders, and it has been near about more than 30 days to all the lenders where the rating downgrade has been communicated. Everybody has confirmed that they are not doing something, and they are active in discussion with us.
Okay.
Yes. Also to your question on the states, like we had mentioned last time as well. We had seen pain in our states of Jharkhand, Odisha, Rajasthan, Gujarat. And we had mentioned also that there was a mix of reasons. Obviously, like Devesh had mentioned in his opening remarks about unnatural and unforeseen climatic conditions added to the pain. Having said that, other than those reasons, we have also now seen some of these parts of these states showing resilience like we have always witnessed. So we see some bit of pain easing in parts of East Odisha. We have seen actually in Punjab and Haryana, which erstwhile, as you remember last year as well, because of issues there. Then parts of Southern Tamil Nadu, and then especially some parts in and around Bhopal. So these have been some of the encouraging geographies which have shown resilience.
While they are part of the larger state, we have seen them showing resilience to come back to normalcy.
Got it, sir. Great. Thank you so much for patiently answering all my questions. Understandably tough times ahead, but I wish you team the very best.
Thank you, Abhijit.
Thank you. We will take the next question from the line of Shreya Shivani from CLSA. Please go ahead.
Yes. Thank you for the opportunity. Sir, my first question is on the lender data that you have shared. Fusion plus 4 or more lenders is at 10% now. It was at 17% in March 2024. If you can help us understand these 7% borrowers that have moved out of this bucket, how many were written off or did they close their loan to the other lender? Do you have some color around that? I get that the past data you have shared that about 17% of these 9.7% customers are paying regularly. In your assessment, do you think there is still some risk of this 9.7% slipping furthermore? Any color around this would be very helpful. My second question is on the loan officer attrition. What I understand is, if you can help me understand how much part of these loan officers' salary is variable.
For example, if majority of their salary ends up being variable, in times of stress, they may find leaving the job easier. Are we having any discussions around that on what kind of salary structure do we want to keep? Do we want to keep majority in variable form or majority in fixed form? My last question is, you spoke about these unauthorized illegal agencies. Just wanted to understand, because I thought this Karz Mukti Abhiyan was done in Bathinda in Punjab and the northern area, so this should not have been impacting us in this quarter at least. If it is happening, which states are these unauthorized illegal agencies operating in?
Shreya, I will go one by one.
Okay.
The first question was the number of over-leveraged lend, number of customers which have come down. Look, I do not have the very specific number, but I can tell you that broadly it is factors like there were customers in our book which were at the back end, which have closed their loan and we have not renewed relationship. This could be customers who are at back end with others, and they have not, because no guard rail is signed in place. They could have closed their loan. Then some customers we have also written off. That could also affect us. I think it is a very good sign that it shows that at industry level, there is an attempt to make sure that the guard rails are followed by everyone and the customer who is defaulting, customer has more lending relationships, is not given further money.
In my view, any such kind of situation creates some temporary scarcity at the customer level because the supply is low. But for the long-term sustainability of the sector, and I think we all align towards better customer acquisition, follow some of the common norms at the industry level, force or basically persuade customer, engage with the customers to come on the center. I think following these steps will really help in making sure that the industry becomes more resilient. Then there are certain issues which still remain, which is there is some income level pains at the ground. Once the customers, the leverage will come down, I think it will be easy for them to really repay their loans. We have gone further, tighter in terms of even own debtness.
What we have done is that, though we have the secretary that own debtness, which has been fixed by the RBI, who is at INR 2 lakh. We have gone state by state. We have looked at certain states which have been more pain. We have even gone further and say, "Okay, we will do only INR 1.5 lakh. Then we are doing some more granular in terms of understanding the villages. I think all those steps should help in the long run. There will be some temporary pain, which will remain. Your next point was about the-
On the incentive. You are absolutely right. As a company, we have never, ever had this situation where the large proportion of the money which the field officer gets is variable. I totally agree with you. Only thing is what we have seen in our case, the incentive is out of the total salary he gets is around 25%-30% only. It has never gone beyond that. Just to give an example, if he gets around INR 15,000, so around INR 4,000 average, INR 3,500- INR 4,000 has been our average incentive over the years. But in situations like this, I will take you back to COVID and situations, events post demonetization. We always have a certain lower cap so that these people remain overall incentivized and we encourage people by making sure that at least some base level incentive goes to them.
But we never do the situation where the proportion of the incentive is too high in overall component of the salary structure for the field officer. That is my point on incentive structure. Third thing, what I have mentioned, that the situation which we see is accentuated. I am not talking about this quarter. What I was talking about that if you look at the events in the last one year, starting from what happened in Punjab and then in some areas. That is what I was saying, that there are illegal outside agencies which have tried to influence customer, and especially during any stress a customer has. They have this inclination to really bank on some of these people, to really not to pay.
We at a MFIN level are very closely working with some of the states to make sure that wherever something like this which happens, it is taken care of. However, the point I am trying to drive at is that, yes, there are some small events here and there which keep on happening like we have seen even in Eastern UP some of these events. So they keep on happening. At a sectoral level, we all come together, we work with the local administration, we work with the state government. However, once the outside influence situation is curtailed, but the customers take some time. You need to do a lot of visits to them, persuasion, moral persuasion, engagement to bring the customers back. That is the point I am trying to drive here, that it takes some time for the customers to really realize that, look, there is no waiver.
They will not get money. Once they need the money, then they really come back and they start paying. That is the reason we have seen in our situation also, even the customer you have written off, we always get around 6%-7% collection keeps on happening even from that pool. So customer comes back and realize. That is the point. I hope I have comprehensively covered your three points.
Yes, sir. That is very useful. Thank you for answering all my questions, and all the best.
Thank you.
Thank you. We will take the next question from the line of Bhavik Dave from Nippon. Please go ahead.
Yeah. Hi. A few questions, sir. One, a little bit on the past. One is, when we look at our data and when we analyze the customers that we've written off over the last 1H , FY 2025, where is the pain coming from? In the sense, is it like the customers who had 3+ loans over and above Fusion is where the pain is or is it customers with higher indebtedness is where the pain is or is it where external environment has gotten difficult and things have gone by? If you had 100 customers that you've written off, if you could just explain us where is the pain coming from in terms of cohorts? That will be question one.
Question two is, when we look at the customers that have gone down 130,000, 120,000 or 1,000 customers that we have maybe written off and the customers account has come off, what exactly is the reason there in the sense, again, any customers where we saw documentation not being done properly from our end? Because what we understand is, there have been lot of lapses across players in terms of KYC. If you could just talk about out of 38 odd lakh customers that we have, how many have we underwritten on Aadhaar versus any other document like a voter ID or any other document to onboard the customer? If you could just talk a little bit on this just to understand how the past has been.
Yeah. Bhavik, let me tell you with full confidence that all the customers in the KYC, we onboard the customers with the KYC. We look at the credit bureau. As far as that angle is concerned, I don't think there is any lapse which we have found. We remain very committed to have a very tightly follow the processes. However, to your second question on your point on the color of this thing. Like if you see in our slide number nine, we have even mentioned that if you look at our PAR 0 Composition of PAR 0, and especially with the customer where relationship is with Fusion plus 3 and more than Fusion plus 4, you look at the PAR composition.
One color we have absolutely seen that when the relationship goes beyond, as I mentioned earlier also, that the overall, when the client indebtedness goes beyond INR 150,000, and depending on geography, especially geographies which are in pain, like Chhattisgarh, Rajasthan, Gujarat, MP, Odisha, and Jharkhand. There, a customer relationship with the number of lenders goes beyond 4. That's where we have seen the cohort clearly shows that the pain is more.
Sure.
Just to give you one more data point that, in terms of how we are tightening it now. We also looked at the fact that if the customer goes to 30+ more than twice in last 12 months, the tendency to default is more. We have been going this retail to make sure in our new credit policy, we have brought this point, that we will not onboard a customer if it has gone more than 30+. That is on this thing. Broadly, Bhavik, I think if you see, it is also accentuated by the overlending, the door-to-door. We have seen many cases where the customer intent is there but because of the whole model where it was dependent on all the customers coming on a center meeting, they are paying. Earlier, the center meeting used to take around 15, 20, 25 minutes.
Now, center meetings are taking around 45, 50. 50% cases, the boy has to go door-to-door. Now the customer knows that if they do not pay today, they can always promise to pay. So that discipline has got disrupted. It is very difficult. We are saying, oh no, there is some lapses in terms of onboarding. No. I think there has been some credit exuberance which has happened. We have also been publishing the data that the retail overlap, there is one more animal we have seen where, whether it is fintech, whether it is their customers taking loans from two-wheeler, the customers who are taking loans from other sources. That also has increased the over-leverage of the customer. I think over-leverage, in my view, is the basic point. Then because of these issues of door-to-door, somewhere attrition, because attrition also with the fact that the conditions have become tough.
He has to go and haggle with the customer, engage with the customer door-to-door, and then now everyone is tightened. He is not able to source those many customers. To earlier question which Shreya asked about the intent, we have even lowered the number of new customer he is going to source every month. We have even gone ahead saying, "Okay, this is a certain number you cannot even source." Because, we believe that if you do more customer like this, that means there is some kind of quality, this thing. Then the new third eye we are trying to bring. Many branches, we have put a third eye, we have third layer, and then another side we have mentioned that we are bringing the quality and offsite, and we already have given offer to around 60 people. In the first phase, we will bring around 200 branches.
The idea is that look at some of these things. I think it is a more broader this thing, but whatever learnings we are seeing, we are trying to implement those.
And sir, second question is on future. When I look at, like you mentioned, if we take that point of over-leveraging where almost 28%-29% of the customers have 3+ and 4+ loans, even when we look at the cut on ticket, the average indebtedness of the customers is around 27 odd percent over INR 1 lakh. So around 30% of the customers are under stress, and out of which 14.5% , sorry, almost 15% is PAR zero, right? Going ahead, what kind of credit costs or how much is more to come in terms of pain, right? Will 50% of this 15% go off in the second half or will it be 70%, 80%? How are we looking at it? Because we have already utilized the kind of provisions that we spoke about in this quarter itself.
How bad is going to be the second half considering things have not materially improved, right? They are improving. If I look at your number from March 2024 to now, 5% of the customers have gone lower in terms of the INR 100,000+ indebtedness, right? But the write-off that we have seen is almost 10 odd percent. So from a second half perspective, how are you thinking about business? Out of this 15 odd percent of PAR zero, how much can really come as a write-off or a credit cost? If you could guide us something on that would be really helpful. Thank you.
Yeah. My two, three comments here. One, just to say that any customer who has more relationships, all the customers will behave badly, I think that is not the right assumption because I can give you one more data point. We have looked at our customers in the top five states and what we saw that 85% customers are still current. They are either current or up to 30, but in the last six months, they have not gone beyond 30. So I think there is some pain they are going through. So there is an effort. Which is the one data point I can share with you. Your second point is on, in my view, in our assessment, in terms of provisioning in this quarter, I think that is the peak we have hit.
From here on, we should see improvement in our performance, but based on the steps we are taking.
Having said that, I think the things still remain dynamic and we remain. Therefore, I will reserve myself from providing any guidance for H2, Bhavik Dave. I can only give you, as I mentioned, that we are seeing some green shoots. The book, after the tightening of the credit norms further, though month on board is not the right metric because I think when we talk next time after Q3, that will be a better time. But we have seen the early signs that book is behaving better than what the similar book was behaving in the last two quarters. And then, as we have put up the collection team, we have seen that there are amounts which are being picked up, though the overall quantum in those buckets are still high. But that numbers are progressively in the last three months have improved.
Our overall collection efficiency, which we have mentioned in our PPT, is holding up. I can tell you that even till now, I think in October also, the numbers are more or less similar. It is not that it is going down. That gives us some kind of confidence that, look, once this could be over, hopefully, if there is no other intervention and how things are coming. As almost everyone has tightened the norms. The overall you see at a sectoral level, the disbursements are down. Customers will realize that they need to keep their records clean. They will need money. The economic activity will go up once this pain goes down. That is what we would like to say on your point.
Sir, it will be helpful if you could just maybe post this call, give us a 30 DPD, 60 DPD cut of this 14.9 and just talk a little, give us a flowchart of how it happened in first quarter and second quarter. Because what will happen is if the 30 DPD roll forwards are not stopping, then eventually it will hurt us in terms of credit cost when they cross 90, right? We will have to provide 50% and 70% respectively as they move buckets. If you could just give us that flow, that will be important because otherwise, even if we have a second half, which is half as bad as the first half, I think things will really look bad in terms of the overall numbers.
Because our challenge is liability, because if I heard Gaurav correctly, this quarter we have only been able to get INR 1,000 odd crore from lenders. Any color on how the conversations are panning out with banks in terms of borrowings that we might have to raise in terms of the liability side? If you could just talk a little bit about that will be helpful. Thank you.
I will let Gaurav add, but I will make two, three comments here, Bhavik. One, when you said that we got because normally we carry on our balance sheet cash of around 8%-10%. Keeping this situation, we were already carrying, as we mentioned, around INR 1,700 crore- INR 1,800 crore of cash. Our disbursements were down from earlier. If you see, it is around a 60% drop from what we did in Q1. So we thought this is sufficient. I can make one more observation here that, if the way that our collection efficiencies are holding up around 91%, 92%, even at a 90% collection, we are able to service our debt and our OpEx. That is my second comment. Then I will let Gaurav respond, add more.
Yeah. As Devesh has mentioned, because we usually calibrate the incremental source of money as per our disbursement plan. Obviously, after the Q1 results, we have made slightly change in our overall liquidity position to carry. That is what Devesh has mentioned, that we are carrying approximately between INR 1,700 crore- INR 1,800 crore on balance sheet as cash. Now, obviously, we have come out with the Q2 result, and obviously we know what is the flavor of the sector. We are actively engaging with the lenders, and we are getting a slightly more of a good response from that they are going to have some discussion with us on the covenant waiver. Once the covenant waiver is there, then obviously we are going to have.
Also, Bhavik, I think one more big confidence we are trying to give to all our stakeholders is this rights issue. I think this INR 550 crore rights issue is giving a good confidence to all our stakeholders, and promoters are completely backing us up. In the past also, we have similar some challenges we have faced, whether post demonetization or COVID. We have got full support from our lenders, and we are hopeful that lenders will give us full support. We have a very healthy capital adequacy, and once this INR 550 crore is in, it will further strengthen our capital adequacy. From a cash flow perspective, as I mentioned to you, I don't think we will be going back to our normal disbursement levels very soon. Disbursement levels will be still be slightly subdued. I think we will keep you updated how our discussion's going on.
We are very actively speaking to them. We are very hopeful. Again, adding to what Devesh has said, that in Q1 also, we have certain breaches in the covenant and we got all the waivers from all the lenders. As of today, from Q1 perspective, we are not in default of any of the breach.
Sure. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Pranav Gupta from Aionios Alpha Investment Management. Please go ahead.
Good afternoon, sir, and thanks for the opportunity. Two questions and one clarification. If you talk about collection efficiency in the X bucket or in the 0-3 bucket, how has that trend moved? You mentioned that there have been certain issues, but could you give out that number? That will be very helpful. That's the first question.
Sorry, Pranav. I could not hear. What did you say? Sorry, can you repeat your question, please? The volume was not clear.
Mr. Gupta, I am sorry to interrupt. Please use your handset to ask question. There is a lot of static.
Is this better?
Yes. Please continue.
Yeah. Hi, good afternoon, and thanks for the opportunity. Just two questions and one clarification. First question is if you can talk about the collection efficiency in zero bucket or X bucket, that will give us an idea of how the flow-forwards are moving. If you can give that out, that will be very helpful to understand how we can think about the quarters going ahead. That is the first question.
Okay. You can tell me both the questions, then I can answer all.
Right. The second question is, if you talk from an industry perspective, and even if you look at our numbers, it seems that a large part of the over-leverage has mainly come in the industry because of the relaxation of RBI norms from moving from a ticket size cap to a household income assessment cap. When we analyze the borrowers that we have today, is it fair to assume that a large part of those borrowers, as per our assessment, would fit in the more than INR 2.5 lakh household income bucket? Is that a fair assessment to make? Those are the two questions.
Okay. In order to answer the first question. To your question on the collections efficiency in the current bucket. At a pan-India level, we've been maintaining almost 97% collection efficiency on that particular bucket, and this has been consistent across the months. Right. Just to give you a flavor. The number that we've shown you on all the buckets taken together, that's the comprehensive number, but it's about 97% on the current bucket. To the second question, I'd let Devesh answer that to you.
Yeah. I think once this RBI deregulation, and especially that change of rules happened in March 2022, and this was definitely an ask from the industry that the overall household level caps of INR 2 lakhs and INR 1.08 lakh, I remember, rural areas were low because overall income levels, inflation, taken that account. And this was done with the fact that everyone will follow all these norms. But looking at, you're right, I think there are other retail overlaps which has led to the over-leverage of this customer. When we look at our system, because we are a rural MFI, and we see that mostly the customer income level, household level income levels are hovering anywhere between INR 2- INR 2.75 , INR 2.80 . I think that's the broad income levels.
However, you have to also appreciate that all this, it's very difficult to really ascertain because there's no formal way. All this is done in a very informal method, speaking to the customer on the face-to-face and asking them questions around it. We also have to keep in mind that there are no formal ways to understand. In a sector level, we are slightly now come out with some kind of template, how do you treat retail overlaps? Which is like if there's no EMI, but there's a loan off. Suppose the customer husband has a credit card and there is no EMI which is mentioned, so we'll say, "Okay, which is minimum due, at least 5% has to be taken into account in calculation of the liability of the customer every month." If there's a gold loan, it's bullet.
We have come out with even those formulas now at a sectoral level, and we are in the process of implementing, only in cases where there's no EMI mentioned. I think it's an evolving thing. I agree with you. I think companies, we all have to really move towards a situation where to how do you assess the customer better. But keeping in mind that it still remains a informal asset class and there would always be ambiguity in terms of understanding the real income of the customer.
Right. Thank you. Just one clarification. When we look at-
I'm sorry to interrupt, sir. I would request you to kindly raise your-
You can actually reach out personally to my IR team for any clarification, please.
Sure. Thanks.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over. I am sorry. We will close the call now. On behalf of Fusion Finance Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.
Thank you.